Updated: Oct 15, 2021
Is SWOT analysis still useful nowadays? Wait… and what does it really mean? How is SWOT analysis done?
In this article, I covered all of these topics and much more. Knowing the meaning of SWOT analysis and implementing it correctly is fundamental for every marketer. Here is another evergreen block of the #MarketingPlan. Keep reading.
Table of contents
WHAT SWOT ANALYSIS MEANS
SWOT analysis is an acronym which represents a powerful assessment tool for projects and business’s strategies. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
Kotler and Keller, in Marketing and management, says:
The overall evaluation of a company’s strengths, weaknesses, opportunities and threats is called SWOT analysis. It’s a way of monitoring the external and internal marketing environment.
This evaluation is the prior step to goal-setting and consists in performing an internal (strengths and weaknesses) and external (opportunities and threats) environment analysis.
They are internal factors that represent a competitive advantage:
Does the business have any successful process?
What’s the business value proposition?
What assets does the team have that make the business unique? Knowledge, education, network, skills, reputation...;
Does the business have any physical assets like customers, equipment, technology, cash, patents…?
Internal factors that have to be developed to unleash a business’s full potential:
What are the flaws in the business’s processes?
Does the business lack tangible assets like money or equipment?
Does the team have gaps? Can team management be improved?
Is the business located in the best area to succeed?
External factors that can positively contribute to a company’s growth:
Is the target market expanding? Will people be encouraged to buy more of the product/service offered?
What upcoming events can the company exploit to grow the business?
And what about laws and regulations, is it expected any change that can positively impact the organization?
External factors that can block a company’s growth:
Are potential competitors expected to enter the company’s target market?
Will the business be able to buy raw material at a convenient price? How much power do suppliers have?
Can future technology improvements negatively affect the business?
If consumers behavior shifts, can it adversely influence sales?
Is the target market stable or its trends could become a threat?
Internal environment analysis
Organizations are not perfect and transforming all of their weaknesses into strengths is madness. The question is whether a business should seize those opportunities for which it possesses the required strengths or consider those which requires to develop new strengths.
Marketers, ball’s in your court.
Here is a list of the main factors to consider while doing a business’s micro-environment audit:
Mission, objectives, marketing strategy…;
Product quality: product lines, product differentiation, market share, price policy, distribution channels, communication, customer service, market research, sales force, budget…;
Research and development (R&D): product design, innovation level, processes...
Instead, here is a list of the critical key points to study during an internal environment analysis (strengths/weaknesses):
Team management: skills, values, bond, expertise, coordination…;
Financial perspective: profitability analysis, cost analysis, ROI…;
Operations: raw material control, productive capacity, cost structure, equipment and material, stock check, quality check…;
Human resources: skills, turnover, training, spirits...
External environment analysis
Every marketer should monitor important macro-environment forces and relevant micro-environment factors that affect the capacity of earning profits.
Finding attractive opportunities is one thing, but another is taking advantage of them.
Good marketing is the art of finding, developing and profiting from these opportunities.
If we set aside politics and other environmental factors that a company can exploit to grow its business, and focus on buyer’s behavior, a marketing opportunity can mainly emerge from three sources. According to Kotler and Keller a company can offer:
Something that is in short supply;
An existing product or service in a different or superior way;
A company can introduce hybrid products/services by matching trends from different industries. For example, all mobile phones are now capable of taking digital pictures and videos or connect through GPS (Global Positioning Systems).
Businesses can make the buying process more efficient and convenient for consumers. For instance, digitalization allowed people to easily find products online and benchmark prices in a few clicks.
Companies can also provide a service that matches consumers’ needs of information and advice. For example, Answer The Public suggests keywords and ideas to content creators according to the most popular people’s queries in search engines.
Marketers can let customers customize products/services (e.g. Timberland allows users to tailor colors for different sections of their boots, add initials, numbers and choose different stitching or embroidery) or introduce a new capability (e.g. in 1999, Apple released iMovie to enable Mac owners to create and edit digital videos, and upload them online).
Other strategies to consider, to envision new opportunities, are fastening the delivery of a product or service, or offering them at a lower price (e.g. pharmaceutical firms made generic versions of brand-name drugs).
Similarly, marketers can use the same prompts to steer clear of threats. External threats are challenges caused by unfavorable trends or developments that, in the absence of defensive marketing action, would lead to lower sales or profit.
Most typical macro-environment forces
As a memo, I made for you a list of the main factors to keep in mind during an external business audit:
Economical changes in outcomes, prices…;
Changes in costs or availability of natural/energy resources;
Cultural, behavioral or lifestyle changes;
Market changes: size, growth, profitability…;
Main competitors: strategies, market share, customer value, strengths and weaknesses…;
Distribution channel: alternative distribution channels, provider/retailer chain...;
Third party institutions: media, government, citizens, communities, labor unions…
How PEST analysis can help marketers to audit a business’s external environment
Organizations have to deal with opportunities and threats that can pop up during different time frames: short, middle and long term.
While SWOT analysis usually points out short and middle term external factors that can affect a business, PEST analysis covers the long term ones.
In strategic management, PEST analysis is an evaluation of Political, Economic, Social and Technological factors. As you can see from the image below, all these elements can be relevant for a SWOT analysis and should be included. It helps marketers to broaden the lookout.
Example of SWOT analysis
I've prepared for you a McDonald's SWOT analysis example by retrieving data from:
A 2019 McDonald's revenue study of Macrotrends;
McDonald's: 60 years, billions served - Chicago Tribune, 04/15/2015;
HOW SWOT ANALYSIS CAN BENEFIT A COMPANY
During my career as a digital marketer, I’ve seen many entrepreneurs jumping head first into projects without having a clear understanding of the actual surroundings. It may result in a waste of money and time. But time is money, so double money!
Entrepreneurial instinct is fine, but risks should always be minimized.
How small businesses can take advantage of SWOT analysis
The benefits of SWOT analysis for large corporations are crystal clear. After all, how can large organizations operate effectively without having a definite idea of their internal and external environment? Above all, if they work internationally.
According to a study of Guidant Financial and LendingClub, Small business trends: 2019, only 29% of small business owners have a bachelor’s degree. It means that they usually lack the necessary management skills and knowledge to scale up their business.
So, of course they might not understand the importance of performing a SWOT analysis!
Good governance is fundamental to bring small businesses to the next level and can be attained by hiring professional consultants or temporary managers.
According to a 2018 survey of Score, The Family Business: successes and obstacles, 94% of family-owned companies are controlled by supervisory or advisory boards.
I also support business owners in strategic management: you can book a talk with me and get all of your digital marketing covered!
SWOT analysis represents a critical block in a business’s governance.
First of all, it is a chance to get unique insight into how a business operates. Small business entrepreneurs are usually generalists and jump breathlessly from one activity to another. A SWOT analysis can definitely help them to have a bird’s eye view of what’s going on in their industry. They can take off the blinders, catch a breath and direct their energy on what really matters.
You don’t want to suddenly end up broke like Blockbuster, right?
If you missed it, Blockbuster’s leadership underestimated the power of streaming content consumption, lost the understanding of its surroundings and the company crashed under the fist of new media like Netflix.
Furthermore, SWOT analysis is not only useful to evaluate a business, but also projects like advertising campaigns, content strategy/editorial plan, trade shows, events and so on.
Conducting a SWOT analysis provides small businesses with intel to develop and implement tangible countermeasures for weaknesses and upcoming threats, and roadmaps or timelines for strengths and opportunities.